Choosing between a Traditional IRA and a Roth IRA can be one of the most important decisions for your retirement strategy. Both accounts offer tax advantages — but they work differently, and choosing the wrong one (or misusing them) can cost you thousands in the long run.
Here are the 12 biggest IRA vs Roth IRA mistakes investors make — and the simple fixes to avoid them.
1. Not Understanding the Key Difference
Mistake: Thinking Traditional and Roth IRAs are the same.
Fix: A Traditional IRA lets you deduct contributions now and pay taxes later. A Roth IRA is the opposite — you pay taxes now and enjoy tax-free withdrawals in retirement.
Your choice depends on whether you prefer tax savings today or in the future.
2. Ignoring Your Future Tax Bracket
Mistake: Choosing without considering future taxes.
Fix:
- If you expect to be in a lower tax bracket in retirement, a Traditional IRA makes more sense.
- If you expect to be in a higher tax bracket, a Roth IRA can save you more long term.
Think of it as a question: Do you want to pay taxes now or later?
3. Contributing to Both Without a Plan
Mistake: Splitting money between both types randomly.
Fix: You can contribute to both IRAs, but your combined annual limit is $7,000 (or $8,000 if you’re 50+).
Make sure each contribution supports your overall tax strategy — not just diversification for the sake of it.
4. Missing Out on Employer Matches
Mistake: Contributing to an IRA before maxing out your employer match.
Fix: Always take full advantage of your 401(k) match first — it’s free money. After that, use an IRA or Roth IRA for additional tax benefits and investment flexibility.
5. Not Paying Attention to Income Limits
Mistake: Contributing to a Roth IRA when you earn too much.
Fix: For 2024, Roth IRA contributions begin phasing out at $146,000 (single) and $230,000 (married filing jointly).
If you exceed the limit, consider a Backdoor Roth IRA conversion — a legal way to move Traditional IRA money into a Roth.
6. Forgetting About Required Minimum Distributions (RMDs)
Mistake: Thinking you can leave Traditional IRA money untouched forever.
Fix: Traditional IRAs require RMDs starting at age 73. Roth IRAs have no RMDs during your lifetime, which makes them great for long-term tax-free growth and estate planning.
7. Taking Early Withdrawals Without Understanding Penalties
Mistake: Pulling out money too soon.
Fix: With both IRA types, early withdrawals before age 59½ often trigger a 10% penalty — plus taxes on earnings.
However, Roth IRA contributions (not earnings) can be withdrawn anytime, tax- and penalty-free.
8. Not Investing the Money Inside the IRA
Mistake: Leaving IRA funds sitting in cash.
Fix: An IRA is just an account — not an investment. You must choose how to invest the funds (stocks, ETFs, bonds, etc.) to see growth over time.
9. Forgetting to Reassess Over Time
Mistake: Picking one type of IRA and never reviewing it.
Fix: As your income, tax rate, or goals change, revisit your IRA strategy.
Many investors shift from Traditional to Roth IRAs over time, especially when income is lower (such as during early retirement or career breaks).
10. Overlooking Roth Conversions During Low-Income Years
Mistake: Ignoring tax-efficient conversion opportunities.
Fix: Converting Traditional IRA funds to a Roth during years when your income is low (or taxes are lower) can lock in long-term tax-free growth.
Just be prepared to pay taxes on the amount converted that year.
11. Forgetting About Spousal IRAs
Mistake: Thinking only working spouses can contribute.
Fix: If one spouse doesn’t work, the other can fund a Spousal IRA on their behalf, doubling your household’s tax-advantaged savings potential.
12. Not Naming Proper Beneficiaries
Mistake: Leaving the beneficiary section blank or outdated.
Fix: Always list up-to-date beneficiaries. Without them, your IRA could end up in probate, delaying access for your heirs and potentially creating extra taxes.
Final Thoughts
The choice between a Traditional IRA and a Roth IRA doesn’t have to be confusing — it’s about timing your taxes strategically.
By understanding the differences, avoiding these common mistakes, and reviewing your plan regularly, you’ll set yourself up for a more secure and tax-efficient retirement.
Your future self will thank you.